Remodeling Industry Structure & Labor Trends Abbe H. Will Remodeling Futures Conference March 17, 215
Research Overview Remodeling contractors are rebounding strongly from the downturn, especially larger-scale firms The industry remains fragmented, but specialty contractors have been particularly successful in achieving scale economies Employment is still well below market peak, the construction workforce is aging, and shortages continue to be concerning 2
The Number of General Remodelers Is Growing Steadily Overall 9. Number of Establishments with Payrolls (Thousands) 86.9 86.4 85. 8. 79.9 84.4 82.5 8.3 79.6 79.9 8.8 83.2 75. 7. 25 26 27 28 29 21 211 212 213 214:2 Note: Estimate for 214:2 is preliminary. Source: US Department of Labor, Bureau of Labor Statistics, Quarterly Census of Employment and Wages. 3
Payroll Employment Is Climbing Back Even More Quickly Number of Payroll Employees at General Residential Remodeling Firms (Thousands) 32 31 36 3 28 289 284 266 282 26 24 248 235 241 252 22 2 25 26 27 28 29 21 211 212 213 214 Source: US Department of Labor, Bureau of Labor Statistics, Current Employment Statistics. 4
Typical Firm Size is Once Again Above Decade Average Average Number of Payroll Employees at General Residential Remodeling Firms 4. 3.5 3. 2.5 2. 1.5 1..5. 25 26 27 28 29 21 211 212 213 214 Average Size of Firm Decade Average = 3.3 Sources: US Department of Labor, Bureau of Labor Statistics, Quarterly Census of Employment and Wages and Current Employment Statistics. 5
Industry Became More Fragmented During Downturn Share of General Residential Remodeling Establishments by Employment Size (Percent) 9 8 7 6 5 4 3 2 1 8.5 81.7 83.6 84.2 84.4 84.3 19.5 18.3 16.4 <5 5+ Number of Employees 27 28 29 21 211 212 15.8 15.6 15.7 Source: US Census Bureau, County Business Patterns. 6
Homebuilders Have Contributed to Growing Fragmentation in the Remodeling Market Share of NAHB Single Family Homebuilders Reporting Residential Remodeling as a Secondary Activity (Percent) 52 5 5.5 5.7 5.1 48 46 45.3 44 44. 42 4 28 29 21 211 212 Source: National Association of Home Builders Annual Member Censuses. 7
Revenue Growth Among Larger Remodeling Firms Has Rebounded Strongly 15 Median Annual Change in Revenue for Qualified Remodeler Top 5 Firms (Percent) 1 5-5 -1-15 25 26 27 28 29 21 211 212 213 Notes: Companies qualifying for the Qualified Remodeler Top 5 list typically generate annual revenues of $1 million or more. Analysis includes remodelers reporting revenue in any two consecutive years and ranking in the top 4 in at least one of those years. Source: JCHS tabulations of Qualified Remodeler magazine s Top 5 Remodelers. 8
Average Job Size is Also Edging Back Up Toward Pre- Recession Levels Median Average Job Size for Qualified Remodeler Top 5 Firms (Thousands of dollars) 18 16 14 12 1 8 6 4 2 16.9 16.3 15.7 15.7 13.2 12.6 12. 11.9 11.5 25 26 27 28 29 21 211 212 213 Source: JCHS tabulations of Qualified Remodeler magazine s Top 5 Remodelers. 9
The Very Largest Firms Typically Outperform the Rest of the Top 5 By a Considerable Margin Median Annual Change in Revenue for Qualified Remodeler Top 5 Firms (Percent) 15 1 5 3.9 8.6.7 5.3 2.1 3. 5.1 5. 3.7 3.3 7.4 5.8 11.9 1.5-5 -1-4.5-4.8-6.7-15 -11.9 25 26 27 28 29 21 211 212 213 Top 1 Rest of Top 5 Notes: Companies qualifying for the Qualified Remodeler Top 5 list typically generate annual revenues of $1 million or more. Analysis includes firms reporting revenue in any two consecutive years. Top 1 (Rest of Top 5) firms were ranked 1-1 (11-5) in the first of those years. Source: JCHS tabulations of Qualified Remodeler magazine s Top 5 lists. 1
Over Half of Top 1 Firms are Specialty Replacement Contractors Comparison of Top 1 vs. Rest of Top 5 for Qualified Remodeler Top 5 Firms in 212 Top 1 Rank 11-5 Average 213 revenue (Millions) $45.4 $4.1 Median 213 revenue (Millions) $17.7 $3.5 Median annual revenue growth 212-13 (Percent) 11.9 1.5 Share of specialty firms (Percent) 53.7 27.4 Median number of jobs 1,664 245 Median average job size (Thousands) $1.5 $13.4 Notes: Companies qualifying for the Qualified Remodeler Top 5 list typically generate annual revenues of $1 million or more. Analysis includes firms reporting revenue in 212 and 213. Top 1 (Rest of Top 5) firms were ranked 1-1 (11-5) in 212. Source: JCHS tabulations of Qualified Remodeler magazine s Top 5 lists. 11
ANTICIPATED UPDATES FROM 212 ECONOMIC CENSUS RELEASE 12
Benchmark Total Number of Contractors Serving the Remodeling Industry General Contractors Number of Remodelers Percent Change 22 27 212 22-7 27-12 Payroll 82,9 77,9-6. -8-11%? Self- Employed 127,2 156,7 23.2-5%? Subtotal 21,1 234,6 15,? 11.7-35%? Special Trade Contractors Payroll 117, 2 139,5 19. -15-18%? Self- Employed 22,9 278,1 37.1-5%? Subtotal 32,1 417,6 25,? 3.5-4? Total 53,2 652,2 4,? 23. -35-4%? Note: Includes self-employed remodeling contractors with annual revenues of at least $25,. Source: JCHS estimates using unpublished tabulations from US Census Bureau, 22 and 27 Economic Census of Construction and Nonemployer Statistics. 13
Increased Concentration of the Remodeling Industry 8 7 6 5 4 3 2 1 Share of industry receipts for largest remodeling contractors (Percent) 1.4 2.5 2.1 3.4 Top 4 Top 8 Top 2 Top 5 Remodeling Contractors 22 27 212 3.3 5.2 5.2 7.9 Source: JCHS estimates using unpublished tabulations from the 22 and 27 Economic Census of Construction, US Census Bureau. 14
Annual Failure Rates During Downturn & Recovery 25 Share of Payroll Establishments No Longer in Operation (Percent) 2 17.4 19.8 17.2 15 1 11.1 11.8 1.7 1.4 5 27-8 28-9 29-1 21-11 211-12 General Remodelers All Businesses Source: U.S. Census Bureau, Business Information Tracking Series. 15
LABOR FORCE TRENDS 16
Nearly a Third of Occupations in the Construction Industry are Not in Construction Trades Share of Construction Industry Labor Force Architecture/ Engineering Business/ Finance 1.3% Operations 1.9% Transportation 2.8% Sales 1.% All Other 3.% Office/ Admin Support 5.4% Management 11.5% Installation/ Maint. & Repair 5.2% Construction Trades 67.8% Notes: The number of employed and unemployed workers in the construction industry was 1. million in 213. Construction also includes extraction occupations. Source: JCHS tabulations of US Census Bureau, American Community Surveys. 17
The Construction Trades Workforce Differs from the Overall Labor Force in Several Key Areas Share of Labor Force in 213 (Percent) 7 63.8 6 5 47.3 4 3 3.9 27.9 2 16.6 1 Women 2.5 More than High School Education Foreign-born All Industries Construction Trades Notes: Data include all workers age 16 and over housed in non-group quarters who are employed or unemployed but available for and seeking work. The construction labor force includes workers with construction and extraction occupations in the construction industry. Source: JCHS tabulations of US Census Bureau, American Community Survey. 18
The Construction Labor Force Lost 1.5 Million Workers Number of Persons in the Construction Trades Labor Force (Thousands) 9, 8, 7, 6, 5, 4, 3, 2, 1, 8,263 6,764 27 213 Employed Unemployed Notes: Data include all workers age 16 and over housed in non-group quarters. The construction labor force includes workers with construction and extraction occupations in the construction industry. Source: JCHS tabulations of US Census Bureau, American Community Survey. 19
After the Downturn, the Construction Trades Included a Much Smaller Share of Younger Workers Share of Construction Trades Labor Force (Percent) 5 45 4 35 3 25 2 15 1 5 44.2 42.9 34.8 27.9 27.9 22.3 2.8 22 27 213 Under Age 35 Foreign-Born Women 2.6 2.5 Note: The number of employed and unemployed workers in the construction industry fell from 8.3 million in 27 to 6.8 million in 213. The construction labor force includes workers with construction and extraction occupations in the construction industry. Source: JCHS tabulations of US Census Bureau, American Community Surveys. 2
Immigrant Inflows Adjust Rapidly to the Changing Demands of the Construction Industry 14 Annual Inflow of Immigrants to the Construction Labor Force (Thousands) 12 1 8 6 4 2 23 24 25 26 27 28 29 21 211 212 213 (e) 214 (e) 215 (e) Notes: Estimated values (e) were calculated using NAHB s regression equation based on single family housing starts. Housing starts for 215 are a consensus average of forecasts from FannieMae, Moody s Analytics, Mortgage Bankers Association, National Association of Home Builders, and National Association of Realtors. Source: NAHB Economics, Construction Immigrant Worker Flow, January 215. 21
Construction Labor Shortage Headlines Abound Where Have All the Construction Workers Gone? Atlantic Monthly, February 13, 215 Construction Companies Face Ongoing Worker Shortage Green Bay Press Gazette, January 23, 215 Skilled Labor Shortage Could Cause Serious Problem' for Construction Industry within 18 months Baltimore Business Journal, June 23, 214 Skilled Worker Shortage Looms for U.S. Construction Firms Reuters, January 21, 214 America's Skilled Trades Dilemma: Shortages Loom As Most-In-Demand Group Of Workers Ages Forbes, March 7, 213 Economists Say Millennials Should Consider Careers In Trades NPR, All Things Considered, February 2, 215 22
Skilled Trades Continue to Top Most Difficult Positions to Fill in U.S. Employers Reporting Most Difficult Positions to Fill in 214 1. Skilled Trades 2. Restaurant & Hotel Staff 3. Sales Representatives 4. Teachers 5. Drivers 6. Accounting & Finance Staff 7. Laborers 8. IT Staff 9. Engineers 1. Nurses Source: ManpowerGroup, 214 Talent Shortage Survey. 23
Homebuilders Overwhelmingly Report Labor Shortages as Challenge in Today s Market 6 Share of Homebuilders Reporting Challenges 5 4 3 2 1 Labor Shortages Cost of Materials Construction Financing Lack of Developed Lots Consumer Financing Government Regulation Source: HanleyWood Metrostudy, 215 Builder Labor Study. 24
Construction Labor Shortage Worse Now Than During Boom Share of Homebuilders Reporting Some or Serious Shortage in Labor Availability 5 45 45 44 46 4 35 3 29 34 25 2 21 15 1 5 24 25 26 212 213 214 Source: NAHB. 25
Framing Workers Are Most Challenging to Find Share of Homebuilders Reporting Positions that are Most Difficult to Fill 8 7 6 5 4 3 2 1 Source: HanleyWood Metrostudy, 215 Builder Labor Study. 26
Hourly Wages Are Growing Again 6 Percent Change (Same Month Year Ago) in Average Hourly Earnings of Construction Employees 5 4 3 2 1 273 279 283 289 293 299 213 219 2113 2119 2123 2129 2133 2139 2143 2149 Source: Bureau of Labor Statistics, Current Employment Statistics. 27
Apprenticeship Programs Have Fallen Steadily Number of Nationally Registered Active Apprenticeship Programs (Thousands) 35 3 25 2 15 1 5 21 22 23 24 25 26 27 28 29 21 211 212 213 214 Fiscal Year Source: US Department of Labor, Employment and Training Administration. 28
Construction Occupations with Residential Application Consistently Rank as Largest Apprenticeship Programs Number of Active Apprentices in Top Federally Administered Programs (Thousands) 4 35 3 25 2 15 1 FY 211 FY 212 FY 213 FY 214 5 Electrician Carpenter Plumber Roofer Painter Note: Occupations were ranked in the top 1 largest programs. Source: US Department of Labor, Employment and Training Administration. 29
Research Summary Total number of residential remodelers likely contracted significantly during the downturn, but firms are rebounding now, especially larger-scale. Top firms are growing about three times faster than total market spending for pro projects. Specialty contractors comprise over half of largest remodeling firms. The construction industry lost 1.5 million workers since the peak. Industry must look to offering better pay/benefits and training/apprenticeships to combat shortages. 3